What Is Gratuity?
Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for long service, paid at the time of leaving (resignation, retirement, or death/disability). It's governed by the Payment of Gratuity Act, 1972.
Who Is Eligible?
- Minimum service: 5 years of continuous employment (4 years 240 days counts as 5 in some interpretations)
- Applicable to: All organisations with 10+ employees (once covered, remains covered even if employees fall below 10)
- Exception: Death or disability — gratuity paid regardless of tenure
Gratuity Formula — Both Types
| Type | Formula | 15 years at ₹60K Basic+DA |
|---|---|---|
| Under Gratuity Act (most employees) | Basic+DA × 15/26 × Years | ₹5,19,231 |
| Not under Gratuity Act | Basic+DA × 15/30 × Years | ₹4,50,000 |
The 15/26 formula = 15 days' pay per year of service, where a month = 26 working days. Not-covered employers use 30 days/month giving a lower amount.
Gratuity at Different Salary & Tenure Levels
| Basic+DA | 5 Years | 10 Years | 20 Years | 30 Years |
|---|---|---|---|---|
| ₹30,000 | ₹86,538 | ₹1,73,077 | ₹3,46,154 | ₹5,19,231 |
| ₹50,000 | ₹1,44,231 | ₹2,88,462 | ₹5,76,923 | ₹8,65,385 |
| ₹80,000 | ₹2,30,769 | ₹4,61,538 | ₹9,23,077 | ₹13,84,615 |
| ₹1,20,000 | ₹3,46,154 | ₹6,92,308 | ₹13,84,615 | ₹20,00,000* |
*Maximum taxable exemption is ₹20 lakh — any gratuity above this is taxable.
Gratuity Tax Treatment
- Govt employees: Up to ₹20 lakh fully exempt from tax
- Private sector under Gratuity Act: Exempt = minimum of (actual gratuity, ₹20 lakh, 15/26 × Basic × Years)
- Not under Gratuity Act: Exempt = minimum of (actual gratuity, ₹20 lakh, half-month salary × years)
- Amount above ₹20 lakh: Taxable at slab rate
🤝 Calculate Your Gratuity
Use Gratuity Calculator →Q: Can my employer refuse to pay gratuity?
No — gratuity is a statutory right. If employer refuses or delays beyond 30 days, file a complaint with the Controlling Authority (Labour Commissioner) under the Payment of Gratuity Act. Interest is payable on delayed gratuity at the rate specified by the government.
Q: Does gratuity change if salary changes?
Gratuity is calculated on your LAST drawn Basic+DA salary, not average. So salary hikes during your career don't directly matter — only your final salary at the time of leaving determines the gratuity amount. Higher last salary = higher gratuity.
⚠️ Educational purposes only. Consult a certified financial or legal advisor for personalised guidance.